Algae fuel is an alternative to fossil fuel and uses algae as its source of natural deposits. Several companies and government agencies are funding efforts to reduce capital and operating costs and make algae fuel production commercially viable.[1] The production of biofuels from algae does not reduce atmospheric carbon dioxide (CO2), because any CO2 taken out of the atmosphere by the algae is returned when the biofuels are burned. They do however potentially reduce the introduction of new CO2 by displacing fossil hydrocarbon fuels.

High oil prices, competing demands between foods and other biofuel sources, and the world food crisis, have ignited interest in algaculture (farming algae) for making vegetable oil, biodiesel, bioethanol, biogasoline, biomethanol, biobutanol and other biofuels, using land that is not suitable for agriculture. Among algal fuels' attractive characteristics: they do not affect fresh water resources,[2] can be produced using ocean and wastewater, and are biodegradable and relatively harmless to the environment if spilled.[3][4][5] Algae cost more per unit mass (as of 2010, food grade algae costs ~$5000/tonne), due to high capital and operating costs,[6] yet can theoretically yield between 10 and 100 times more energy per unit area than other second-generation biofuel crops.[7] One biofuels company has claimed that algae can produce more oil in an area the size of a two car garage than a football field of soybeans, because almost the entire algal organism can use sunlight to produce lipids, or oil.[8] The United States Department of Energy estimates that if algae fuel replaced all the petroleum fuel in the United States, it would require 15,000 square miles (39,000 km2) which is only 0.42% of the U.S. map.[9] This is less than 1⁄7 the area of corn harvested in the United States in 2000.[10] However, these claims remain unrealized, commercially. According to the head of the Algal Biomass Organization algae fuel can reach price parity with oil in 2018 if granted production tax credits.[11]